Goldman Sachs Lowers Forecast for Japan, U.S. Growth

Bloomberg News | Aug 9, 2010 | 10:03 AM GMT+0530

Goldman Sachs Group Inc. cut its growth forecasts for the world’s two largest economies on signs that stimulus boosts will wane. Japan will grow 1.4 percent in 2011, compared with an earlier forecast of a 1.7 percent expansion, Tokyo-based senior economist Chiwoong Lee said in a report dated Aug. 7. Goldman last week lowered its projection of U.S. growth for the same year to 1.9 percent from 2.5 percent. A report today showed Japan’s current-account surplus narrowed for a second month as export gains cooled, adding to concerns that the recovery is losing steam. Government incentives that have bolstered spending at home are wearing off, with economists forecasting second quarter gross domestic product grew at half the pace of the previous period.

“We expect signs that growth is slowing to gradually emerge in line with the disappearance of the government stimulus boost both in Japan and abroad,” Lee wrote in a separate report dated today. “The U.S. economic recovery has lost a considerable amount of its momentum.” Japan will experience a “significant falloff” in consumer spending, which has so far been propped up by government measures, according to Lee. He noted that there is “little chance” Prime Minister Naoto Kan will extend a program scheduled to expire in December that encourages household to buy energy-efficient electronics. 
Seven-Month High

Japan’s jobless rate is at a seven-month high and factory output fell in June. The GDP report due Aug. 16 may show that the expansion moderated to an annualized 2.1 percent from 5 percent in the previous quarter, according to the median estimate of 11 economists surveyed by Bloomberg News. Lee said Japan’s export gains are already losing steam and will be “sluggish” in 2011 given a worsened outlook for the expansion in the U.S. U.S. growth will be slower in 2011 because of lawmakers’ resistance to extend several stimulus measures, Lee said. The unemployment rate, which was at 9.5 percent in July, may climb to 10 percent “by early 2011,” he said. That may prompt the Federal Reserve to return to “unconventional monetary easing,” such as increasing its purchases of Treasuries, he added.


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